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Washington Lobbying Oils Russian Capitalism
Tycoons Go All Out to Gain U.S. Financial Backing

By Dan Morgan and Michael Dobbs
Washington Post Staff Writers
Wednesday, October 27, 1999; Page A01

When Russian American businessman Leonard Blavatnik acquired a major stake in Russia's largest oil field in 1997, it was a coup that showed he could maneuver in the rugged business climes of the former Soviet Union.

But that was only step one. In the last two years, Blavatnik has demonstrated that he can also play the Washington game, as he fights to nail down nearly $500 million in U.S.-backed credits critical to his Russian venture.

In moves that reveal how Washington has become a second front in the rough-and-tumble world of Russia's new capitalism, Blavatnik and his companies have made thousands of dollars in political contributions, hired a Washington lobbyist and employed a U.S. public relations firm to help plead their case. The U.S. Export-Import Bank is in the final stages of approving the loans, the first major American assistance for a Russian enterprise since last year's collapse of the ruble.

Blavatnik's discovery of Washington's importance points up a new phenomenon. While public attention has focused largely on the murky, and sometimes murderous, business feuds in Russia, some of the intrigue now takes place in the more staid setting of Washington.

Since the mid-1990s, Russian businessmen have hired public relations firms such as Daniel J. Edelman Inc., Hill and Knowlton, and Burson-Marsteller; lobbying and law firms such as Akin, Gump and Verner, Liipfert; and New York investment banks to polish their images, make connections and lobby for U.S. financial backing.

Some of the tycoons, such as media magnate Vladimir Gusinsky, represented in Washington by former House member Don Bonker (D-Wash.) of the APCO lobbying firm, sought international contacts. But the driving force has been the hunt for U.S. loans and capital after easy money schemes dried up in Russia after 1994.

To promote its quest for U.S. Department of Agriculture credits, for example, the American arm of a now defunct Russian food importer hired Washington lobbying firms and contributed $60,000 to the Democratic and Republican parties in 1996.

And when Russian business mogul Boris Berezovsky came looking for capital several years ago, CS First Boston trotted out a glamorous Washington face. It brought in its vice chairman, former--and future--American ambassador Richard C. Holbrooke, to join half a dozen meetings. No deals were completed, a CS First Boston spokesman said.

None have more at stake in the Washington connection than Blavatnik, a U.S. citizen who exemplifies a new breed of Russian-born business executives who can maneuver with equal ease in Moscow and Washington.

"The American connection is of crucial importance," says Blavatnik, who, together with relatives and associates, has contributed at least $20,000 to House International Relations Committee Chairman Benjamin A. Gilman (R-N.Y.) since 1996. His New York-based company, Access Industries, gave $20,000 to the House Republican campaign organization last year and followed up with $20,000 to the Republican National Committee last month.

The Washington strategy has borne fruit for Tyumen Oil Co., which Blavatnik jointly controls with one of Moscow's banking tycoons. While most U.S. lending to Russia has been cut off for more than a year because of bank failures, mismanagement and corruption, the Ex-Im Bank--with Gilman's backing and Akin, Gump's lobbying on Blavatnik's behalf--is on the verge of guaranteeing $489 million of credits for Tyumen.

Moreover, to secure the credit guarantees, Blavatnik and his Washington advisers have so far outmaneuvered a Goliath: BP-Amoco. The largest producer of oil and gas in the United States, the British-American giant is fighting to keep its interest in another rich Siberian field also coveted by Tyumen Oil. BP-Amoco contends that Tyumen's takeover tactics there are unfair and could jeopardize its $571 million investment, one of the largest by a western company in Russia.

So far, Blavatnik has been winning the fight. In May, the Ex-Im Bank tentatively agreed to guarantee a $197 million loan to modernize one of Tyumen Oil Co.'s aging refineries using U.S. equipment and suppliers. The following month, it did the same for a $292 million credit that would enable Halliburton Co. of Houston to refurbish Tyumen's Samotlor field, adjacent to the BP-Amoco investment.

The action set off a furious lobbying battle that, over the last few months, has embroiled congressional committees, Vice President Gore, and Russian and British leaders. Although the period in which Congress could formally voice objections has ended, the U.S. bank's governing board has not given final approval.

At a series of meetings with staffs of key congressional committees, lobbyists for BP-Amoco urged a delay, and Blavatnik began playing his Washington cards.

A Russian who came to the United States in 1978 at 18, Blavatnik attended Harvard Business School, then made several million dollars in New York real estate and other ventures. The political changes in the Soviet Union drew him back to Russia in 1991, and into the lucrative but notoriously violent metals trading business.

Then, in 1997, he teamed with one of Russia's leading oligarchs, Mikhail Friedman of Alfa-Bank, to take control of a privatized Tyumen Oil Co. The acquisition gave him and his partner control of Samotlor, an almost mythic field. In the Soviet era, it produced as much as Kuwait and Iraq combined, but poor production techniques left it waterlogged and inefficient--damage the U.S.-backed loans could assuage.

Political connections are crucial in Russia's new capitalism, so Blavatnik and his partners placed local Siberian politicians--including the governor of the Tyumen region--on their oil company's board.

But as Blavatnik soon found, Washington machinery also had to be oiled. In December 1997, Access Industries vice president Paul Rodzianko, who had made political friends serving on the town council of Tuxedo, N.Y., co-hosted a fund-raiser at the Sherry Netherlands Hotel for his congressman: Chairman Gilman. It raised $29,000, much of it from members of Blavatnik's family and Access Industries employees and business associates. Last October, just before the congressional elections, Blavatnik, relatives and company employees contributed an additional $5,500 to the Gilman campaign.

As the lobbying battle with BP-Amoco began to heat up in Congress earlier this year, Rodzianko asked a top Gilman staffer to check on the loan guarantees.

On June 13, Gilman requested information about the loans in a letter to Ex-Im Bank Chairman James A. Harmon. Gilman, who did not return calls last week, praised the work of Access Industries, noting it had introduced "modern accounting standards" and was using western-trained executives at Tyumen. Harmon replied July 12 that the loans had been referred to Congress for comment.

When then-Russian Prime Minister Sergei Stepashin visited Washington later that month, Blavatnik attended a dinner for him, sitting at a table with Harmon and exchanging greetings with Gilman, who also was a guest.

By then, Tyumen Oil Co. had hired the lobbying and law firm of Akin, Gump to press its case. On Aug. 2, lobbyists and Tyumen Oil officials, including Alan Bigman, a Gilman contributor, made their case before staffers at the House Banking Committee. Joining the discussions was a staffer from Gilman's committee.

"There's just a tremendous amount of interest in this issue," said one staffer who has been following the dispute closely.

Meanwhile, the proposed U.S. backing for the credits has taken on major political symbolism in light of last year's financial collapse in Russia and recent allegations of Russian corruption.

The Russian government supports the loan, but British Prime Minister Tony Blair, in a Sept. 7 letter to Russian authorities, warned that other foreign investors might be scared away from Russia if BP's investment is lost.

Already under criticism for its policy on aid to Russia, the Clinton administration has kept its distance. Vice President Gore reportedly was noncommittal on the Tyumen loans during talks with Stepashin last summer--a neutral stance that Tyumen officials took as good news.

Some congressional staffers say the Ex-Im Bank has given tacit support to Tyumen Oil's attempt to take over the rich Chernogorneft field, in which BP-Amoco has sunk so much of its Russian hopes. Tyumen officials acknowledge helping to arrange bankrupt Chernogorneft's repayment of a $17 million Ex-Im Bank loan several months ago. As a result, the Ex-Im Bank was dropped from the creditors committee and Tyumen acquired effective control. Moreover, some congressional aides note, control of Chernogorneft, which adjoins Tyumen's own holdings, could help Tyumen repay the proposed U.S.-backed loans for Samotlor by generating cash.

Rep. Judy Biggert (R-Ill.), whose district is home to a major Amoco research facility, has written Harmon that she is mystified by the proposed loans "in light of increased congressional concern that U.S. tax dollars being used to promote Russia's transition toward a democratic society are being misused."

But Simon Kukes, an Amoco-trained Russian executive who is president of Tyumen Oil Co., accuses BP-Amoco of using his company as a scapegoat for its bungled Russian investment.

"They are making a lot of noise but haven't come up with any real proof," he said. "Look at facts, and then smoke disappears."

Ex-Im officials have not backed away from their position. Said a bank spokeswoman: "We're very comfortable with the deal and what's been done."

Researchers Alice Crites and Mary Lou White contributed to this report.

© Copyright 1999 The Washington Post Company

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